Question

Suppose that M = 300, P = 100, and Y = 6. Then the velocity of circulation equals Select one: a. 2.00. b. 3.00. c. 50 d. 0.50. e. 0.02.

Answer 1

a. 2.00.

Step-by-step explanation:

The formula and the computation of the velocity of circulation are shown below:

According to the quantity money theory

M = Total money

V = Velocity

P = Price level

Y = Volume of goods and services

As we know that

Total amount of money in the economy × velocity = Price level × volume of goods and services

300 × velocity = 100 × 6

300 × velocity = 600

So, the velocity is

= 600 ÷ 300

= 2

Hence, the first option is correct